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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Miscellaneous Aspects of Retirement Planning

A 58-year-old client plans to retire at 60 and expects to live to 90. An adviser builds the retirement corpus using a post-retirement period of only 20 years. Which risk is the adviser most clearly under-providing for?

The adviser is under-providing for longevity risk. The client may live to 90, giving 30 retirement years, but the plan funds only 20, so the corpus could be exhausted while the client is still alive and needing income.

  1. ALongevity riskCorrect
  2. BReinvestment risk
  3. CLiquidity risk
  4. DCredit risk

Explanation

The client may live to 90, which means 30 years of retirement, but the plan covers 20. Running out of money because of a longer life than assumed is longevity risk. Reinvestment, liquidity and credit risks relate to other features of the portfolio and do not arise from the plan length.

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